House Buying Questions

Q:   What can I afford to buy?

A:   What you can afford is the first thing you should determine, and that depends on how much income and how much debt you have.  In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts.

You should check with several lenders before you start searching for a home.  Most will be happy to approximate what you can afford and pre-qualify you for a loan.

The price you can afford to pay for a home will depend on six factors:

1. Gross income.
2. The amount of cash you have readily available for the down payment, closing costs, and cash reserves required by the lender.
3. Your outstanding debts.
4. Your credit history.
5. The kind of mortgage that you select.
6. Current interest rates.

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known).  If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.

This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances.  Your total debt-to-income ratio should be in the 34 to 38 percent range.

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Q:   How much money do I need?

A:   Several factors including type of loan, purchase price involved in down payment, closing costs, home inspection, earnest money.

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Q:   What is earnest money?

A:   Earnest money is a deposit to show the seller in good faith that you are serious about buying their home.  The money is refunded to you at closing to be applied towards your down payment.  (Minimum 1% of the purchase price)

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Q:   What is the standard debt-to-income ratio?

A:   A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total.

The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income.  

Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment.  Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.

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Q:   What's a home inspection?

A:   A home inspection is when a paid professional inspector -- often a contractor or an engineer -- inspects the home, searching for defects or other problems that might plague the owner later on.  They usually represent the buyer and or paid by the buyer.  The inspection usually takes place after a purchase contract between buyer and seller has been signed.

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Q:   How do I find a home inspector?

A:   Your realty agent is one source.  Inspectors are listed in the yellow pages.  You can ask for referrals from friends.  Ask for their credentials, such as contractor's license or engineering certificate.  Also, check out their references.

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Q:   What are closing costs?

A:   Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home.  These costs include attorney fees, document preparation, survey, lender fees, prepaid interest, homeowner's insurance, and property taxes.  Unless, these charges are rolled into the loan, they must be paid when the home is closed.

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Q:   Who pays for closing costs?

A:   This is negotiable.  Several factors are taken into consideration:

• Purchase price of the home.
• The type of loan involved.
• Down payment on a home.

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Q:   How do I get started on buying a home?

A:   Contact Keith & Mary Williams for a free, no-obligation consultation and buyer's packet.

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Q:  What home-buying costs are deductible

A:   Any points you or the seller pay for your home loan are deductible for that year.  Property taxes and interest are deductible every year.  Check with your tax preparer for other deductions.

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Q:   How do property taxes work?

A:   Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, which on average, is 1.5 percent of the property's current market value.  These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.

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Q:   Are property taxes deductible?

A:   Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.

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Q:   How do I find out if the seller is being honest about the condition of their home?

A:   Home inspections, seller disclosure requirements and the agent's experience will help. Disclosure laws vary by state, but in some states, the law requires the seller to complete a real estate transfer disclosure statement.  Here is a summary of the things you could expect to see in a disclosure form:

• In the kitchen:  a range, oven, microwave, dishwasher, garbage disposal, trash compactor.
• Safety features such as burglar and fire alarms, smoke detectors, sprinklers, security gate, window screens and intercom.
• The presence of a TV antenna or satellite dish, carport or garage, automatic garage door opener, rain gutters, sump pump.
• Amenities such as a pool or spa, patio or deck, built-in barbeque and fireplaces.
• Type of heating, condition of electrical wiring, gas supply, and presence of any external power source, such as solar panels.
• The type of water heater, water supply, sewer system, or septic tank also should be disclosed.

Sellers also are required to indicate any significant defects or malfunctions existing in the home's major systems.  A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.

The form also asks sellers to note the presence of environmental hazards, walls, or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property.

Also look for, or ask about settling, sliding, soil problems, flooding, or drainage problems and any major damage resulting from earthquakes, floods, or landslides.

It's important to note that the simple idea of disclosing defects has broadened significantly in recent years. Many jurisdictions have their own mandated disclosure forms as do many brokers and agents.  Also, the home inspection and home warranty industries have grown significantly to accommodate increased demand from cautious buyers.  Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.

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Q:   Can you give me some tips on negotiation?

A:   The more you know about a seller's motivation, the stronger a negotiating position you are in. For example, a seller who must move quickly due to a job transfer may be more agreeable to a lower price. Other people more motivated to sell include people going through a divorce or who have already purchased another home.

Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for.  Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller's asking price compares.  

Keep in mind that if your offer is too low, that the seller may be insulted, therefore rejecting your offer.

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House Selling Questions 

Q: How is a home's value determined?

A:   You have several ways to determine the value of a home.  An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality.  A comparative market analysis is an informal estimate of market value performed by a realtor based on similar sales in your neighborhood and surrounding area.

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Q:   What is the difference between market value and appraised value?

A:   Appraised value is a certified appraiser's opinion of the worth of a home at a given point in time.  Lenders require appraisals as part of the loan application process; fees range from $200 to $300.
Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker.

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Q:   Will a neighbor problem reduce the value of my property?

A:   While it may not reduce the actual value, a cluttered landscape can detract from the positive aspects of your home.  Review your local laws, which should be on file at the public library, county law library or City Hall.  A typical "junk vehicle" ordinance, for example, requires any disabled car to either be enclosed or placed behind a fence.  And most cities prohibit parking any vehicle on a city street too long.

It also may be worthwhile to check into local zoning ordinances.  An operator of a home-based business usually is required to obtain a variance or permanent zoning change in residential areas.

In addition, if a neighbor's repair work produces loud noises, he may be breaking local noise-control ordinances, which are enforced by the police department.

Before bringing in the authorities, you may want to make a copy of the pertinent ordinance and give it to your neighbor to give them a chance to correct the problem.

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Q:   What repairs should the seller make?

A:   Most sellers like to make all minor repairs before going on the market to make their home more appealing.  In addition, nearly all purchase contracts include a buyer contingency "inspection clause," which allows a buyer to perform their own inspection.  If the problems are noted, buyers can attempt to negotiate repairs.

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Q:   How is the price set?

A:   It's very important to price your home appropriately relative to current market conditions.  Because the real estate market is continually changing, and market fluctuations have an effect on property values, it's imperative to select your list price based on the most recent comparable sales in your neighborhood. A comparative market analysis provides the background data on which to base your list-price decision. Study the comparable sales material presented to you by the different agents you interviewed initially.  If the analyses are more than two or three months old, have your agent update the report for you.

If all agents agreed on a price range for your home, go with the consensus.  Watch out for an agent whose opinion of value is considerably higher than the others.

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Q:   What is the difference between list and sales prices?

A:   The list price is the price tag put on a house in a real estate listing; it usually is only an estimate of what the seller would like to get for the property.  The sales price is the amount a property actually sells for.  It may be the same as the listing price, or higher or lower, depending on how accurately the property was originally priced and on market conditions.

A seller may need to adjust the listing price if there has been no offers within the first few months of the property's listing period.